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Posts Tagged ‘price theory’

Price Controls in the NBA Force Teams to Find Different Ways to Keep Their Stars

The NBA free agent market opened this month and the moves making headlines include:

Steve Nash signing with the L.A. Lakers
Ray Allen signing with the Miami Heat
Jason Kidd signing with the New York Knicks
Deron Williams re-signing with the Brooklyn Nets

And then there is the Dwight Howard saga. 

Each of these stories appears to be summarized by a familiar line: 

Big star signs in Big Market. 

The Price of Blown Glass: Opportunity Cost and Demand Elasticity

A puzzle. My nephew has switched to making art glass full-time, and I think his work is gorgeous. His problem, though, is figuring out what price to charge. Among other things, he blows gorgeous candlesticks, which he thought of selling for $70 a pair. I say he should charge $250 a pair. He says no, because he thinks he can sell many more at the lower price.
He assumes it takes one hour of his time to blow a pair after he’s done the first pair, and incurred the fixed cost. So I guess his decision depends on the opportunity cost of his time and the elasticity of demand for his product. Clearly, there is a set of combinations of the cost of his time and the expected change in quantity sold that would make him indifferent between the high and low prices, with a higher opportunity cost requiring a higher demand elasticity if the price is lower.
Given the two prices, what is this set? And what do you think the demand elasticity actually is in this case? (HT to SEH)

Paris Under Siege: Why Were Cats Four Times the Price of Dogs?

In his discussion of the Siege of Paris 1870-71, David McCullough in The Greater Journey discusses the path of meat prices. One observer “considered cats ‘downright good eating,’ as apparently did many people. The price of a cat on the market was four times that of a dog.” Whether the price difference was really based on demand—differences in tastes for the two kinds of meat—or supply—is not mentioned in the book, but perhaps Parisians protected Fido less well than they protected Fluffy.
This illustrates a ubiquitous problem in discussing price differences: It’s easy to adduce a cause on one side of the market, but just as easy to bring up another cause on the other side of the market. I would bet on demand in this case, though, since it’s easier to protect Fido than a loose-running cat.

Is the Senior Slam Smart?

Denny’s breakfast menu in Provo, Utah, offers something that combines demand-based and cost-based price discrimination, but it’s neither.
The “French toast slam” is two pieces of toast and two eggs, two strips of bacon and two sausages for $6.99. The “senior French toast slam” is one piece of toast and one egg, and two strips of bacon or two sausages for $5.49, and you must be at least 55 years old to buy this.

Disneyland and the Texas Tower

A local artist paints landscapes and various Austin sights, including the Texas Tower (the university’s main building). He must pay the university a flat fee per year for the right to sell paintings of University property, emblems, or even anything containing the burnt-orange color. All are copyrighted. Also, if his sales rise above a certain level, he must pay the University 10 percent of his extra revenue.

Bicycle Inflation in Paradise?

When I arrived in Portland last month, the first thing I wanted to do was buy a bike and get around the way the locals do. Since I wouldn’t be in town for too long, and it wasn’t clear that I’d be able to take the bike with me when I left, I wanted something extremely cheap.

Brothels, Buffets, and Disneyland

I read in a local newspaper about a bordello in Germany, where prostitution is legal, that charges customers a fixed fee: a bit over 100 euros ($140) for an evening of drinks, food, and entertainment.
This kind of pricing is common to amusement parks (Disneyland, for example), ski lifts, all-you-can-eat restaurants, and elsewhere. It is a way the firm can minimize the transactions costs of pricing each service and also, if the fixed price is set properly, extract the entire consumer surplus.

Would You Pay More …

… for a Sanka ashtray if Luc Sante made up a story about it? Apparently at least a few people would, as Joshua Glenn and Rob Walker found when they launched a project called Significant Objects, where they paired up creative writers with objects bought at garage sales and asked them to make up a story about the objects. Each object is for sale on eBay, where anyone can bid for it.

Do Taste and Smell Adjectives Signal Value, or Do They Create It?

Two papers at last month’s meeting of the American Association of Wine Economists in Reims (this is my second of two articles about the conference) investigated this question with respect to the wine industry, which is, if not a microcosm of all consumer-products industries, at least an increasingly apt caricature of them. While creative adjectivism has long characterized the wine world, the practice in other taste industries — chocolaty coffee, metallic fish, grassy honey, peaty whiskey — is now ascendant.

Is Free Free?

You can read Malcolm Gladwell’s review Chris Anderson’s Free: the Future of a Radical Price online for free–except of course for the price you paid for your computer, mobile device, electricity and internet connection. This hitch is just one problem Gladwell has with Anderson’s idea…

Why Are Kiwis So Cheap?

I’ve been eating a lot of kiwis lately. At the corner deli near my home, I can buy three for $1. They are delicious. Unless the stickers are lying, they come from New Zealand. At 33 cents apiece, a New Zealand kiwi costs less than the price of mailing a letter to the East Side. (And believe me, I consider a first-class stamp one of the greatest bargains ever.) How on earth can it cost so little to grow, pick, pack, and ship a piece of fruit across the world?

Why I Like Duopoly

Our telecom bill is huge; for cable (no premium channels), cable modem, landline, and my iPhone, it’s about $250. I’ve tried to get AT&T to give me a deal on the landline and iPhone, but to no avail. The cable company, however, will take over my landline at a total price for everything but the iPhone at $5 more than . . .

Ten Thousand Dollars for a Music CD?

If Josh Freese‘s music exhibits as much creativity as his marketing, he should have a hit record on his hands. Freese, who was part of Devo in a previous life, has just released a new album. While $10,000 might sound like a lot to pay for a copy of the CD, at that price he will also go on rides . . .

Ladies' Day at the Beach

he Mandalay Bay in Las Vegas boasts the Moorea Club, which it advertises as offering a European-style beach, with entry limited to ages 21 and over.
It does not advertise that the price of day use is $50 for male customers and $10 for female customers. While examples of price discrimination are ubiquitous, this is one of the purest examples of demand-based price discrimination. The service the club offers is the same to men and women: a place in the sun, which is equally costly to the club, regardless of the patron’s gender.

Hate Surcharges? Just Wait; the First Domino Already Fell

A resident of Austin was complaining on a local TV station about continuing energy surcharges — on prices of airplane tickets, electricity, and other things — at a time when oil prices have tumbled. Presumably, instead of raising nominal prices, companies imposed surcharges last year to convince customers that the increases were temporary; but with the average variable cost of . . .

Good Economic News for the Holidays: Volatility Is Down

One of the most important but underreported financial indicators is the CBOE‘s Volatility Index (^VIX), which measures the market’s expectation of future volatility in stock prices. (The CBOE has written a nice technical white paper describing how it is calculated, here.) Traditionally, the annualized volatility of the S&P 500 has been 20 percent, but last month when I went to . . .

Why Are Discount Stores Full of XS and XXL Clothes?

Photo: sporkist My former Ph.D. student and frequent co-author Erik Snowberg sends along an interesting question: Why do discount clothing stores (like Nordstrom Rack — and clothing sales in general) have an excess of really small and really large sizes? I have to admit, I’ve always wondered. Erik continues: The typical answer seems to be that there are more medium . . .

I’m Not Going to Pay a Lot for This Cereal

We’ve written repeatedly about pay-as-you-wish commerce or honor-system payment schemes, ranging from music to bagels to coffee. A reader named Seth sent in an interesting new example, all the more so because it shows how one firm is using the pay-as-you-wish mechanism as an experiment to find a good price for a new product: I am writing to tell you . . .

Why Tourists Pay More at the Beach

I’m on our annual beach week with the extended family in New Jersey and the beach patrol comes by insisting I buy beach tags for everyone 12 and over. The prices are: $6 for one day, $12 for one week, or $24 for the season (but only $19 for the season if bought before Memorial Day). The price structure is . . .

FREAK Shots: $1 Billion Dinners and Other African Pricing Problems

Fares for a trip to Goree Island in Senegal (the Communaute Financiere Africaine franc, CFA, is the Senegalese currency) break down like this: Foreigners: Adults- CFA 5,000 (US $13) Children- CFA 2,500 (US $6) Africans: Adults- CFA 2,500 (US $6) Children- CFA 1,500 (US $3.60) Senegalese: Adults- CFA 1,500 (US $3.60) Children- CFA 500 (US $1.20) Johannes Kiess In this . . .

Getting the Cheapest Ride

I’m trying to decide what to do about train travel during our 5-month sabbatical in Germany. For $55 I can buy a card that gives me a 25 percent discount on all train tickets I buy. So if I buy $220 worth of train tickets I break even — any more than that is a good deal. I have to . . .

What Does $33.6 Million Mean in the Art World?

Lucian Freud‘s painting Benefits Supervisor Sleeping recently set a sale record for a living artist at $33.6 million. Does this symbolize a thriving art market, is it a happy exception, or is it even worth the price? According to one estimate, the money paid for the painting could have paid for 20 minutes of America’s gasoline consumption. Benefits Supervisor Sleeping, . . .

To Discriminate You Need to Separate

Price discrimination — charging different prices for the same product or service — requires preventing people who pay a high price for an item from being able to buy it at a low price. This is done by separating the markets — linking the price to different times when the item is bought, such as day or night, weekday or . . .

St. Thomas Aquinas, Capitalist

In today’s New York Times review of Rodney Stark’s book Victory of Reason, which asserts that historical Christianity helped the development of capitalism far more than it hindered the same, William Grimes (the reviewer) offers this tasty example: Christian theology, which Mr. Stark praises as constantly evolving, kept pace with economic developments. Thinkers like Augustine and Thomas Aquinas gave their . . .

Andy Francis (Mr. Price of Sexual Desire himself) Responds to the Critics

Our latest Freakonomics column described a recent academic paper by Andy Francis. I asked him to respond to the comments that have been raised on our blog (see here). He was kind enough to oblige. Here is what Andy has to say: Thank you for all your comments. They were insightful, and I enjoyed reading them. Let me take a . . .

A bargain at $900,000

I have no idea what this means, but now a bunch of kind readers have sent me a link to the following website which purports to tell you what your blog is worth. The answer for the Freakonomics Blog, at least when I looked, was $996,413.10. Hmmm. That seems just a bit high. I talked to Dubner and we agreed . . .

What do U-haul prices tell us about America?

Read what Chris Lightfoot has to say about this question here. The origin of the idea for the analysis appears to be in this marginalrevolution post. The idea is that large differences in prices for one-way trips from Detroit to Las Vegas compared to one-way trips the other direction reflects differential migration. The answers aren’t so surprising: the flow tends . . .